AT&T In LatAm: MS Downgrades Telefonica Brasil, Lowers AMX TP

By Shuli Ren

AT&T CEO Randall Stephenson said at the deal conference: “And you just have to be impressed by the opportunities that we are going to have in Latin America. Obviously, we are excited about where this is going to take our business. I think it is hard to find an exact parallel to this transaction anywhere in the world.”

Morgan Stanley has become cautious on Latin America’s telecom services sector, saying “AT&T’s decision to sell its 8% stake in America Movil as part of the DirecTV acquisition could be a game-changer for LatAm telcos.”

First of all, AT&T may want to expand beyond PayTV in Latin America. Second, the deal attracts the attention of anti-trust regulators, which now may slow down the pace of industry consolidations.

Here are analysts Michel Morin and Diego M Aragao:

This represents a new competitive threat for established telcos in the region, and CEO commentary on T’s conference call reinforced our view. We also expect that T’s appetite to invest directly in the region will capture the attention of politicians and regulators, which seems likely to lower the probability that governments would allow in-market consolidation in Brazil and elsewhere, in our view. Even if T’s plan to acquire DTV were to fail, the company’s planned sale of its AMX stake would allow it to make other investments in the region over time.

Accordingly, Morgan Stanley downgraded Telefonica Brasil (VIV) to Hold with a lowered target price of $21, and lowered its target price for America Movil (AMX) from $20 to $19.

Shares of Telefonica Brasil are down 1.7% trading at $20.88 since the deal was announced on Sunday. America Movil fell 4% yesterday and was up 0.5% this morning trading at $19.

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